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Michael McNamee is the sole shareholder of a property management company near the campus of Pensacola State College

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S1-6 Applying accounting concepts and principles [5–10 min]

Michael McNamee is the sole shareholder of a property management company near
the campus of Pensacola State College. The business has cash of $8,000 and furniture
that cost $9,000 and has a market value of $13,000. Debts include accounts
payable of $6,000. Michael’s personal home is valued at $400,000 and his personal
bank account has a balance of $1,200.

Requirements

1. Consider the accounting principles discussed in the chapter and define the principle
that best matches the situation:

a. Michael’s personal assets are not recorded on the property management company’s
balance sheet.

b. Michael records furniture at its cost of $9,000, not its market value of $13,000.

c. Michael does not make adjustments for inflation.

d. The account payable of $6,000 is documented by a statement from the furniture
company showing the business still owes $6,000 on the furniture.
Michael’s friend thinks he should only owe about $5,000. The account
payable is recorded at $6,000.

2. How much equity is in the business?

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